In Market Commentary

All Eyes on Europe

Just a few days ago Russia launched an invasion of Ukraine. While the situation is rapidly evolving, Russia’s apparent goal has expanded from a small occupation to an attempt at total occupation of Ukraine.Troops on both sides are camped on the edge of the capital Kyiv and there have been numerous reports of fighting and explosions in the area. Right now, the conflict is real and the situation is bad. If hostilities expand, we could be witnessing a catastrophic event in eastern Europe or worse. The markets have been reacting in some unusual ways and we’ll get to that in a moment.

Our hearts go out to the Ukrainian people and the tragic development they are all facing. Financially, many in Europe have been shaken to the core. Even some here in the United States are concerned about the conflict in Ukraine, the implications it could have on our markets, or that it may lead to an escalation that could include the US.

Sell the Rumor, Buy the News?

Burned out school in Ukraine. Stock historical footage

Burned out school in Ukraine. Stock historical footage.

We don’t have a crystal ball or pretend to be all knowing. We do believe in some basic principles of markets and investing. Many have heard the old adage, “Buy the Rumor, Sell the News”. Over the last two days in the markets, we have seen almost the opposite. More like, “Sell the Rumor, Buy the News”, as in the markets have been selling off for weeks on speculation that Russia would invade Ukraine. Now that it has actually happened, and Ukraine has managed to withstand the opening offensive and sanctions have been placed on Russia, it appears markets reacted swiftly to the upside upon realization that the conflict may be limited in scope. With all of this said, the situation on the ground in Ukraine and greater Europe could change at a moment’s notice.

Our team is monitoring the situation closely. While the exceptional rally in the markets over the past two days is a positive sign for both the world and investors alike, this is not the time to fully relax.

Stock Market chart with volatility

While we have shared overall guidance through times of crisis before, we feel like it bears repeating that making emotional decisions during times like these (or any crisis) is not a good idea.

If the early days of COVID taught us anything, jumping to conclusions and making rash decisions at the wrong time can be costly. From the March 23, 2020, COVID Pandemic low to most recently, the DOW for example is up over 80%.

War and military action can rile markets. Sometimes it can be a violent reaction, overaction, and a prolonged back and forth in local, regional, and international markets.

Despite the initial volatility and overwhelming headlines, rarely have military conflicts led to deep or impactful depressions or prolonged bear markets. During the Cuban Missile Crisis, where markets (S&P 500) were down the first 30 days of the crisis, a year later they produced a gain of 32%. More recently, after both Gulf Wars the stock market produced gains in excess of 28% each time.

During any major crisis, the early headlines, fear, and reaction can be severe. After the initial shock, markets start to adjust to fundamentals, and generally fundamentals have not been materially hurt by historic conflicts. There’s also the psychology of crisis itself. Fear of an event during crisis is often worse than the event itself because of the unknown. Markets usually stabilize after the initial shock simply because uncertainty (the unknown) begins to go away.

Ukrainian flag at square


Our outlook at this point is one of healthy caution. The economic impact of the Russian invasion into Ukraine will be relatively localized. Sanctions against Russia will have an impact. Most portfolios don’t have material exposure to Russian assets.


The next obvious concern is the energy market. Oil peaked at around $100 a barrel early Thursday to moderate in the low 90s at the time of this writing. Natural gas prices in Europe soared as the dependency on Russia for energy presents a major risk to the continent.

While our portfolios are generally underweight to Europe, we may see a sharp bounce back post crisis but will maintain our current position on this asset class.

When the situation in Europe hopefully cools off, global markets will focus on fundamentals again. While the risks to the United States look relatively minor from an economic perspective, there are other factors that present some headwinds to the markets. Let’s talk about inflation. The current shock to commodity markets (oil, metals, etc.…) will definitely mean higher inflation in the short term. This is especially in Europe and the Middle East given the geographic proximity to the current conflict in Ukraine. The situation in the US will likely not change much given the insulation from conflict being on another continent provides. As we continue to monitor markets, we may even allocate some direct tactical exposure to metals such as aluminum and titanium.

Finally, the specter of the FED looms large. During times of crisis, it’s not uncommon for central bank policy makers to halt rate hikes or even go into easing mode. This action is not a given but wouldn’t surprise us at this point. We also expect some toning down of language by these central bank players as to avoid further rattling the markets.

The road ahead in the short term will be rocky. Markets may swing wildly, and volatility may be our neighbor for a while. Headlines may stoke fear and uncertainty, but markets will eventually revert to fundamentals as cooler heads prevail. Both parties may eventually come to realize the wise words of the computer system Joshua in 1980s movie WarGames, “A strange game (war). The only winning move is not to play.”

Based on the recent significant recovery in the markets and current headlines, we believe odds of the crisis in Ukraine spiraling into a larger conflict affecting global markets is low. Not zero, but low.

Scene from WarGames movie

Everyone’s financial situation is unique. Their goals, objectives, risk tolerance, and such. If you should have any questions about the current crisis in Ukraine or anything at all, don’t hesitate to reach out to our team.

Thank you for your trust and support,

The RINA Wealth Management Team

Tom Neff
Tom is the Managing Partner of RINA Accountancy, LLP.
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Ukraine and Russian fists collideSurfing a very rough wave